Gulf oil spill: Judge orders protections for people seeking damages

A US judge this week told claims czar Kenneth Feinberg, who oversees BP's escrow fund, to make clear to claimants that he is affiliated with BP. The system for recouping losses stemming from the Gulf oil spill is stacked against applicants, critics charge.

In this Jan. 28 photo, a fisherman navigates his boat near docks on a bayou in the American Indian fishing village of Pointe-Aux-Chenes, La.

Patrick Semansky/AP

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A federal judge in New Orleans this week ordered claims czar Kenneth Feinberg to stop telling people seeking to recoup losses related to the Gulf of Mexico oil spill that he is operating independently of BP.

Mr. Feinberg administers a $20 billion escrow fund that oil giant BP established to pay out damages to fishermen, tour-boat operators, hotel owners, and others who lost their livelihoods stemming from last year’s Gulf oil spill. (He also oversaw the government compensation program for families of 9/11 victims.)

Critics of Feinberg's Gulf Coast Claims Facility (GCCF) say that because Feinberg is paid by BP, there's a built-in conflict of interest that stacks the entire claims process against the people who are seeking redress. Their allegations came amid Feinberg's revelation that damages are likely to total about $10 billion – or half the $20 billion that BP has laid aside for that purpose.

Though the GCCF is under federal orders to operate outside the reach of BP and with full transparency, lawyers for claimants went to US District Judge Carl Barbier to clarify what the GCCF can and can’t advise people seeking damages, and to order that the business arrangement between Feinberg and BP be made public.

Specifically, 16 law firms representing claimants asked Judge Barbier to tell Feinberg that he must spell out that claimants have a right to pursue damages though civil court rather than through GCCF, that he stop stating in public that it would be wrong for them to seek independent legal counsel outside the claims process, and that the GCCF make clear that Feinberg’s firm is being paid $850,000 a month by BP. They filed their motion Dec. 21 to Judge Barbier, presumably because he was appointed in August to hear the bulk of the cases related to the oil spill.

“The reality is that BP has been playing a ‘shell game’ with the GCCF from the very beginning,” the motion asserts. “They can’t have it both ways: The GCCF should either be a truly separate and independent trust … or, if, in the alternative, the GCCF is nothing more than an alter ego of the BP defendants, Mr. Feinberg and the claims facility should be required to operate under the attendant legal, ethnical and professional duties and responsibilities.”

In a statement, BP said it respect the ruling, issued Wednesday. Feinberg’s spokesperson did not return calls for comment.

Barbier’s ruling described BP as having “created a hybrid entity, rather than one that is fully independent” and that because BP pays his salary and he was selected by the company without input from claimants, Feinberg “is not a true third-party neutral such as a mediator, arbitrator, or court-appointed special master.”

Barbier ordered Feinberg to make his relationship with BP transparent though all communications involving claims. He added that claimants need to receive statements that they have the right to an outside lawyer and that the GCCF needs to make clear that BP compensates directly or indirectly any pro-bono lawyers of community representatives it may offer to assist.

To date, the fund has paid $2.9 billion in emergency relief. Some 167,967 claimants – some businesses and some individuals – have filed 469,502 claims. Of claims paid to individuals, a majority were $5,000 or less. The majority of business claims were valued between $10,000 and $25,000.

In phone conversations, lawyers who work on behalf of claimants say their clients find the GCCF's process difficult to navigate and are often presented with contradictory information. People without legal savvy or legal counsel are more likely to accept the settlement terms offered them, they say.

The claims system, they say, discourages claimants from seeking their own legal counsel. During settlement negotiations, claimants can elect to receive payments that are doled out quarterly through August 2013, or they can accept a final lump sum. If they choose the latter, they are required to waive any right to seek legal action against any company involved with the spill, including BP. This set-up, critics say, entices people to accept the lump sum up front and to forgo independent legal action.

As for the allegation that Feinberg's firm benefits by holding down payouts, Boston University law Prof. Jack Beermann, who is not involved in the claims process, sees an indirect advantage if Feinberg manages to limit how much money BP pays. “If more people take the BP deal, his services will be more in demand” by companies who face the threat of future liability action, says Mr. Beermann.

Feinberg has said all along that BP, not taxpayers, should be responsible for his fees and that the situation does not create a conflict of interest because he is working independently of BP and the government.

But Beermann counters that the current system presents the perception of bias – even though none may exist – because it relies on a single arbitrator instead of a panel, as is typical in situations involving large claims.

“Normally you wouldn’t let a lawyer represent two sides of the same claim. You would want each person to go in there with eyes wide open and have their own lawyer,” he says.

Phone calls to the GCCF and its media representatives were not returned. In late December the GCCF addressed the issue by releasing a letter written by Stephen Gillers, a legal ethics expert at New York University School of Law, that endorses Feinberg’s neutrality.

“You are not in an attorney-client relationship with BP. You are an independent administrator and owe none of the attributes of the attorney-client relationship (e.g., loyalty, confidentiality) to BP. By 'independent' I mean (and I think the context is clear) that you are independent of BP. You are not subject to its direction or control,” Mr. Gillers wrote of Feinberg.

But days after the letter was released by the GCCF, it was assessed as partial after the Associated Press reported that Gillers billed BP $950 an hour and an assistant $475 an hour.

The system set up for compensatory damages in the Gulf has some key differences from the compensation program for the 9/11 families, which Feinberg oversaw, others note. The main one is that the 9/11 fund was not settling claims for liabilities, says Martin Davis, director of the Tulane University Maritime Law Center in New Orleans.

“There was no template for [Feinberg] to follow to do this,” Mr. Davis says. “I’m not quite sure what the right answer is, and I’m not sure Feinberg is so sure either – which is why we’re into this kind of stalemate.”

Among some claimants, suspicions are rising that the claims system is designed to work against them. Mississippi seafood processor Keath Ladner, whose claim for $1.7 million has been pending for three months, told Associated Press in December that the lump-sum settlement offer was “the perfect definition of extortion.”

Fishermen like Mr. Ladner are being forced to “make a tricky decision,” says Davis.

“I’d be advising the fishing people not to take anything other than the temporary payments because it’s difficult to know now what the long-term effect is going to be, as fishing may be down for years,” he says.

Barbier did not rule on any changes to the release forms that claimants sign to receive final payments. He ordered both sides to submit additional briefs by Feb. 11 to address whether BP is complying with the law in the processing of those claims.